The bottom line: Intelligent Portfolios is unique in charging no management fee, but portfolios tend to hold a larger cash allocation than other robo-advisors.
Best Broker for IRA Investing
Schwab Intelligent Portfolios®
no promotion currently offered
Pros & Cons
No management fee.
Wide ETF selection.
High account minimum.
Large cash allocation and low default sweep rate.
Tax-loss harvesting only available on balances of $50,000 or more.
Compare to Other Advisors
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Charles Schwab's online advisor service, Schwab Intelligent Portfolios, offers two options to investors. The base service, Intelligent Portfolios, is a robo-advisor that requires a $5,000 minimum investment and charges no advisory fee. Schwab Intelligent Portfolios Premium, an online financial planning service, provides clients with unlimited access to certified financial planners for a $25,000 minimum balance and $30 monthly fee. The premium offering also charges a $300 one-time planning fee.
Schwab Intelligent Portfolios is best for:
Access to certified financial planners (at the Premium tier).
High account balances.
Where Schwab Intelligent Portfolios shines
Free management: Schwab's base service, Schwab Intelligent Portfolios, charges no management fees, commissions or account fees. This is rare among robo-advisors, which make money mostly from management fees.
However, it isn't exactly a case of charity — customers still pay the expense ratios on the investments used in their portfolios, and many of those are Schwab funds. The company also takes a cut of the interest earned on the uninvested cash in portfolios (more about this below). But even factoring those in, Schwab Intelligent Portfolios is a value.
Flat fee for Schwab Intelligent Portfolios Premium: The free management goes away if you opt for Schwab Intelligent Portfolios Premium, the company's hybrid advisor that offers the same portfolio options as the free service, alongside unlimited one-on-one access to certified financial planners. Premium costs $30 a month (billed as $90 quarterly) and requires a balance of $25,000 or more. It also charges a one-time $300 planning fee.
Most robo-advisors — and human financial advisors — charge an annual fee calculated as a percentage of assets under management. To compare costs, it's important to look at how much Schwab's flat fee costs as a percentage of your balance. Like most flat fees, Schwab's pricing is ideal for investors with higher balances, who seem to be the target of the service.
Here's the percentage of assets under management you'll pay for Schwab Intelligent Portfolios Premium at sample portfolio balances:
$30/month as a percentage of assets per year
For context, compare these numbers with the 0.30% charged by Vanguard Personal Advisor Services, the 0.40% fee for Betterment Premium — Betterment's hybrid offering that also offers unlimited phone access to financial advisors — and the 0.89% charged by Personal Capital.
As you can see, investors who deposit Schwab Intelligent Portfolios Premium's minimum of $25,000 will get burned, while those who exceed $125,000 will enjoy very competitive costs when compared with other services. It gets almost unheard-of cheap as account balances climb into the high six figures.
Unlimited access to a team of CFPs: That flat fee for Premium comes with a lot of value in the form of access to a team of certified financial planners. A lot of people will happily dole out financial advice, but quality matters — these advisors have specialized training and must abide by a code of ethics. Meetings are held via phone, chat, email or video conference.
Clients who opt in to the premium service receive a written financial plan and get access to interactive planning tools where they can update assumptions and change their plans. The service doesn't offer a dedicated relationship with a single advisor, so if that's important, you might prefer Personal Capital or Facet Wealth.
Investment scope: Schwab handily delivers on the diversification promise. It draws from 53 exchange-traded funds, or ETFs, which enables it to offer exposure to over 20 asset classes. The company says the weighted average operating expense ratio of portfolios built by the service is 0.14%. These portfolios are used in both the free and Premium offerings.
Ability to customize: Like other automatic advisory services, Schwab cooks up a customized portfolio based on the answers to questions that get at an investor’s goals, time horizon and risk profile. Investors can tweak the allocation in Schwab's recommended model by picking as many as three ETFs to remove and replace with an alternative investment of Schwab’s choosing. For example, if you don’t like the foreign-market ETF chosen for your portfolio, Schwab’s feature lets you punt it from your portfolio in favor of another from the list.
Customers can have as many as 10 different types of Intelligent Portfolios accounts (so long as there's $5,000 in all accounts combined), customizing each with a different goal and strategies.
Financial planning tools: Speaking of goals, Schwab Intelligent Portfolios Premium offers a variety of tools to help you set and reach your financial goals. A scenario-planning tool called the Play Zone stands out: It allows you to change assumptions about your finances and lifestyle — things like when you plan to retire, how much you're saving and expected investment returns — to see the potential impact on reaching your goal. Other tools assist with college planning, investment allocation and goal tracking.
Where Schwab Intelligent Portfolios falls short
One-time planning fee for premium service: Schwab is the only online advisor we review that charges an upfront fee when opening a Schwab Intelligent Portfolios Premium account, which it calls a "one-time planning fee." It's a steep $300, and should be factored in when you compare the cost of services.
Revisiting the table above, that extra $300 nearly doubles the cost of Schwab's premium service for the first year:
$30/month + $300 as a percentage of assets in first year
Note that this fee is only applied to Premium accounts; it doesn't apply to basic Schwab Intelligent Portfolios accounts.
Large cash position in portfolios: The biggest criticism of Schwab Intelligent Portfolios’ strategy is that it allocates a good percentage of money to cash — a minimum of 6% all the way up to nearly 30% of total portfolio holdings, the latter of which makes sense for those at the conservative end of the risk spectrum. According to Schwab, most Intelligent Portfolios clients hold from 6% to 10% in cash. But even that may even be too cash-heavy for some investors.
Sitting on do-nothing cash may be good for investors who aren't disciplined about deploying their cash reserves, especially when the market is in a down cycle. But those who have other plans for their cash and who desire a completely invested portfolio service may be turned off by this unavoidable cash allocation. What's more, the annual percentage yield Schwab currently pays on cash allocations is lower than you would get in a savings (or money market account) at many banks or credit unions.
Limited tax-loss strategy: Tax-loss harvesting is one of the selling points of having a robo-advisor manage your portfolio. It’s a complicated task of selling loser investments in a taxable account to offset taxes on any gains. It's particularly valuable for investors in the higher income tax brackets. The service is only available to clients who opt into the feature and have a minimum of $50,000 in their taxable account. Keep that in mind if it's a must-have feature on your wish list.
Is Schwab Intelligent Portfolios right for you?
Schwab Intelligent Portfolios has all the characteristics of an ideal robo-advisor: The company has a strong reputation, it has some of the lowest-cost ETFs on the market (its own) and offers all this with an ongoing $0 management fee. Investors who have $25,000 or more and want access to financial planners can upgrade to Schwab Intelligent Portfolios Premium for $30 a month and a one-time $300 planning fee.
We’re not fans of the high cash allocation, especially for younger investors, and the one-time planning fee for premium is tough to swallow. We would also like to see tax-loss harvesting made available for any customers with taxable accounts. But Schwab is a solid choice for savers taking their first foray into robo-advisor managed accounts. Low-balance investors may want to stick with the basic service, then consider premium when their balance tops $125,000.
Dayana Yochim contributed to this review.